Strategy of Levis Strauss: Choice and Changes - Case Study Example

MODULE: Strategy: Choice and Changes ID: Assignment: Levi’s Case study Introduction Levis is one of thewidely known jeans brands in the world today. The company was founded in the year 1875 by the Strauss family. During its initial years, it produced jeans for miners from canvas and tent fabrics. From this, it went forward to produce items from denim thus growing from strength to strength. In the last few years, it has been faced with a lot of challenges that have impacted negatively on its sales and profits. In a bid to turn this round, a new CEO was hired in 2012. This treatise gives an analysis of the Levis Straus Case study on the basis of Porter’s generic strategies, McKinsey 7S, strategic grouping, PESTLE and SWOT analysis. Models Porters’ Generic strategies The Porter’s generic strategy is a model that looks at how a business strives to gain competitive advantage in its market scope (Murray, 2012). To achieve this, three approaches can be employed. They include lowering costs, differentiating and focusing. To effectively meet its objectives, the enterprise will have to decide on which one of the three approaches it intends to employ. According to Hayes (2014), implementing two of the above three tactics may make the business lose its valuable resources without attaining any form of advantage. The first aspect is lowering cost. Levis Strauss has been thinking of reducing the item charges but it has not done this. The second aspect is differentiating. Levis Straus has over the years used differentiation to stay above other industry players. It has achieved it by being innovative. Levis comes up with products that are dissimilar from what other manufacturers make. It has used this practice in all its levels of its operations from design to distribution. The third component is focusing. Generally, Levis Strauss has focused on the older generation segment of the market which identifies with its products. McKinsey 7S Model This refers to a method which is used for organizational analysis. It monitors the changes in the internal situations of a company (Ireland, Hoskisson & Hitt, 2012). This approach is based on a theory that states that for an organization to perform optimally, there are seven key elements that should be aligned effectively. The analysis divides the essentials into soft and hard elements. The first group is those that the management can easily identify and change as per the needs of the business (Wickham & Wilcock, 2012). On the other hand, the latter are not easy to point out. Moreover, the managers have minimal influence and control over them. Hard Elements Soft Elements Strategy Reducing operation cost by cutting on unnecessary expenses Getting in touch with the loyal customers who easily identify with the product Differentiating its products from those of the competitors Shared values Re-inventing the traditional touch of the company and brand Corporate Social responsibilities Structure Better cost structure Skills Innovative products and systems Unique products Systems Denim Bar The Eureka lab is used to boost production Reducing the numbers of stores Style of leadership Transformational leadership that involves all the managers of the company. Staff The company had a large staff base and most of the managers were not aware that the business was performing dismally. This called for a reduction in the number of workers and hiring of transformational leaders who could take the company to new heights. Porter’s five forces analysis Balogun & Hope-Hailey (2008) define Porter’s five forces analysis as a management framework used to evaluate the level of competition in a particular industry. It allows the management to assess how the business is performing with respect to the other businesses in the industry. The clothing and the denim industry has several players. Levis boasts of being the pioneer blue jeans maker. However, new entrants have brought in new dynamics. In the Levis Straus case, study, the five forces analysis was done as shown below. Threat of new entrants The denim industry is said to be among the most promising sectors. This, therefore, makes the threat of new entrants high (Fairchild, 2014). Several manufacturers have entered into the field and this has the potential of reducing the market share of the company. Threat of substitute products Due to the high number of denim makers in the industry, the threat of substitute products remains high. Some of the alternative merchandises that may affect the sales and profitability of Levis include the gym kids, yoga pants and other available casual wear. The bargaining power of consumers Consumers have needs and demands that keep changing from time to time. This is in terms of color and design (Fairchild, 2014). When these needs are not met, the consumers tend to go for alternative items. The availability of substitutes makes the bargaining power of the potential customers high. The bargaining power of suppliers Considering the fact that the company was able to effectively reduce the number of its global vendors, it is evident that the bargaining power of the suppliers has remained relatively low. Moreover, the company has not experienced a shortage in terms of materials and this is another pointer to the low supplier bargaining power (Fairchild, 2014). Rivalry Despite being the oldest brand in the denim industry, Levis faces stiff competition from various manufacturers and brands. Some of the key rivals include True Religion, 7 For All Mankind, Wrangler and Zara. These companies have come up with high end products that rival Levis. Others like Zara are selling low priced items which are attractive to consumers. Strategic Group Analysis This is defined as a management tool that groups businesses that have similar models or strategies (Johnson, Whittington & Scholes, 2013). In the restaurant industry for example, this model can group the involved enterprises as fast food or fine food eateries. The grouping can be done on the basis of preparation time, prices and the services. Below is the analysis for Levis Strauss case study. Pricing policy Giving low cost offers to be able to compete with the companies that offer cheaper alternatives like Zara Product/service quality Levis has failed to respond to the changing customer tends. It seems to be satisfied with its brand thus making it hard for it to attract the young generation Extent of geographical coverage Being one of the oldest denim companies, Levis Strauss is able to spread its geographical coverage to about 2300 stores worldwide Number of market segments served The company has two market segments. The first one is the group that used to buy its products but with time became dissatisfied. The second group is the young generation that does not know about Levis products. Extent of branding Levis Strauss is a global brand. As a pioneer denim manufacturer, it was able to appeal to a larger market thus allowing it to open up stores in a lot of world countries Distribution channels Company retail outlets. The products are made in central plants and then distributed to the retail stores Marketing effort The “Live in Levi’s” campaign is being used to make the old customers remember the brand. Moreover, it has bought naming rights for the San Francisco 49ers stadium to create brand awareness Degree of vertical integration From the case study, there appears to be no employment of vertical integration by the denim giant Extent of product diversity It has four unique brands PESTEL Analysis This framework looks into the macro environmental factors faced by an enterprise. These factors affect the operation and profitability of a business either directly or indirectly (Ireland, Hoskisson & Hitt, 2012). For the case study, it was done as shown below. Political Non was indicated Economic Availability of cheaper alternatives Reduced consumer spending power Social There is a growing preference for casual wear among target customers Technology Technology has provided opportunities which can be used to come up with innovative products and processes. Summary of models using SWOT Analysis SWOT analysis is a structured tool that helps in evaluating four major factors affecting projects or business (Wickham & Wilcock, 2012). In the Levi Strauss case study the models can be summarized using this tool as shown below. Strengths Strong brand by virtue of being the oldest denim maker Over 100 years of experience Proven success on the industry Weaknesses The products are not fashionable among the young generation Delay in taking up trends Too much focus on brand protection The products are too expensive Poor management Opportunities Growing market for casual wear Globalization has opened up new markets Technology can be used to come up with innovative products Changing social trend and cultures have seen more women wear denim thus creating a wider market Threats New entrants into the market causing intense competition Changing consumer needs in terms of design and color. Conclusion and Recommendations Based on the analysis, it is quite evident that Levis Strauss is in a weak position. The company can however use the four elements of the Ansoff matrix to strengthen its position. The Ansoff Matrix refers to a strategic planning framework which helps managers and marketers to come up with approaches which can be sued for future growth of the business (Ansoff, 1957). It identifies four avenues for doing this. They are market penetration, market development, diversification and product development. To be able to penetrate the market, it should focus on the needs of the current market rather than protecting its brand. .Product diversification and development will also be key. This can be done by coming up with innovative products such as the denim wear which fits differently depending on body shape. With these, Levis Strauss will be able to increase its sales and market share. The implementation of the strategies will require the participation of all the top managers of the company. Reference List Ansoff, I 1957, “Strategies for Diversification”, Harvard Business Review, Vol. 35, No. 5, pp. 113-124. Balogun, J. & Hope-Hailey, V 2008, Exploring Strategic Change, Ed3, Prentice Hall, Upper Saddle River. Fairchild, C. 2014, “Does Levi Strauss still fit America?” Fortune Magazine, 6 October, PP. 9-15. Hayes, J. 2014, The Theory and Practice of Change Management, Ed4, Palgrave Macmillan, London. Ireland, R., Hoskisson, R, & Hitt, M 2012, The Management of Strategy: Concepts and Cases, 10th Ed. Cengage Learning, London. Johnson G, Whittington R & Scholes K 2013, Exploring Strategy, Prentice Hall, Upper Saddle River. Murray, A.I. 2012, "A contingency view of Porters "generic strategies." Academy of Management Review, Vol.13, pp. 390-400. Wickham, L & Wilcock. J 2012, Management Consulting: Delivering an Effective Project, Ed 4. Prentice Hall, Upper Saddle River. Read More